What will replace Nigeria's petrol subsidy?

Dec 14, 2021|Carl T. Macaulay

"The waste of money cures itself, for soon there is no more to waste" — M. W. Harrison

The Nigerian government has missed multiple opportunities during previous oil booms to develop the country. In the 1970s, there was a sharp increase in oil prices, with price levels hitting over $130 per barrel in 1980. The next big oil rally started at the beginning of the millennium, and oil rose consistently until it sold around $180 a barrel during the 2008 global recession.

Some takeaways

According to the World Bank, the poorest 40% of Nigerian households only consume 3% of the petrol supplied, making the subsidy a regressive policy.
The bottom 40% received a subsidy of ₦31 billion in 2021, while the cash payments will directly provide ₦2.4 trillion to the bottom 20% over 12 months.
Implementation of this policy will be critical to its success. Identifying the poorest Nigerians and disbursing in a way that limits corruption is vital.

In fact, in the heydays of 2012, oil sat comfortably above $120 per barrel, earning the Nigerian government nearly $100 billion from oil exports. And so, for a long time (and arguably to our detriment), Nigerian policymakers have relied heavily on volatile oil revenues as the primary source for financing our budget. Unfortunately, given the economy's lacklustre track record at delivering economic gains for its citizens, it begs the question of why our government spending has had such little impact.

To unpack why this is so, let's look at one of the ways the government spends the money earned.